The GBP/USD pair has reclaimed some of its recent losses, trading around 1.2770 during the Asian session on Thursday. The British Pound (GBP) is strengthening as the US Dollar (USD) corrects downward after breaking its four-day winning streak, despite ongoing support from higher US Treasury yields.
At the time of writing, the US Dollar Index (DXY), which tracks the USD against six major peers, is hovering around 106.50, while the 2-year and 10-year US Treasury bond yields stand at 4.16% and 4.28%, respectively.
US Dollar Faces Pressure Ahead of Fed Decision
The US Dollar is facing some headwinds following the release of the US Consumer Price Index (CPI) data, which, while showing a slight increase, does not appear to be enough to prevent the Federal Reserve from proceeding with further rate cuts. The CME FedWatch Tool now suggests nearly a 99% chance of a 25 basis point rate reduction at the Fed’s meeting on December 18. This has prompted traders to shift their focus to other upcoming economic data, including the US November Producer Price Index (PPI) due later on Thursday, for fresh insights into inflation trends and potential policy implications.
The US CPI report revealed a 2.7% year-over-year rise in November, up from 2.6% in October. The monthly CPI increase was in line with expectations at 0.3%, while core CPI, excluding volatile food and energy prices, rose 3.3% YoY and 0.3% MoM, matching market forecasts.
UK Economic Data Supports Pound Sterling
Meanwhile, the UK economy shows signs of resilience, with the Royal Institution of Chartered Surveyors (RICS) reporting a 25% surge in the Housing Price Balance for November, up from a 16% increase in October. This result exceeded market expectations of a 19% rise, reflecting continued strength in the UK housing market. Given the housing market’s sensitivity to economic cycles, the report suggests broader economic stability in the UK, which is supporting the Pound.
Market sentiment towards the Bank of England (BoE) is also positive, with expectations that the BoE will keep its interest rates unchanged at 4.75% in its December monetary policy decision. As a result, traders are focusing on the UK’s upcoming October GDP data, due for release on Friday, to gauge the broader economic outlook.
In summary, the GBP/USD pair is benefitting from a weaker US Dollar and positive UK economic data, while the outlook for the US Dollar remains influenced by expectations of further Fed rate cuts and upcoming US economic reports.
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